Shedding a light on green bonds

The Government aims for a greener economy. Companies and organizations are trying to support their production through green resources. The green economy, green bonds, green business and going green have become the current anthem around the world! We know what the green economy and green business mean, but as you weren’t initially aware of ‘green bonds’, so will many of you. So today with the help of this article let us understand the term.

Green Bonds: In simple language, these are the bonds issued by the Government and are tax-free. These bonds are used for underdeveloped localities primarily by municipalities or federally qualified organizations. The purpose of these bonds is to finance projects that are aimed at achieving energy efficiency, the protection of aquatic and terrestrial species, pollution control, management of water quality and quantity, and clean transportation, among others. Due to the tax free status, the purchase of this bond represents a lucrative investment compared to a taxable bond. This tax-exempt status acts as a financial incentive to address social issues such as the preservation of energy sources and climate change.

Qualifying for a green bond requires:

1. The building is at least 20 acres the size
2. The project will receive a minimum of $5 million from the state or municipality
3. A minimum of 75% of the building is registered for the Leadership in Energy and Environmental Design (LEED) certification, a rating system developed to measure the environmental impact of the building.

Certain benefits of green bonds are:

Reduction of the cost of the project: These bonds are an excellent system for saving a large amount of capital to support environmental investment. Ideal for large-scale green projects, such as solar and wind development, that require capital investment before generating income and that generate modest income over a long period of time.

Investor demands: Due to the growing awareness of a green financial market, there is a constant demand for socially responsible investment projects. Due to this scenario, investors are expressing great interest in buying green bonds. While retail investors seek investments through their brokers and fund managers, institutional investors use these bonds to handle social, economic, and government mandates. Before green bonds came onto the scene, it was difficult to address these mandates with fixed income tools. This is why these bonds have managed to attract new investors, thus providing a new platform for future issuances.

Brand value creation: As the main provider of these bonds is the government, they seize the opportunity and brand themselves as innovators and dedicated to keeping pace with green projects.

Leadership: Speaking of the future, green bond issuers are the world leaders. With their active participation, they can encourage municipalities to participate and create a reputation for monetary innovation. This will give way to future projects in the financing of environmental projects.

Sharing the time that efforts are made to preserve the environment, green bonds are a whole new opportunity for investors and issuers. In addition to the benefits mentioned above, green bonds are known for other advantages over other financing options, some of which are:

Provide a means to access sustainable investments in a fixed income market in a familiar and low-risk environment.

Allow municipalities to develop a public-private partnership to accelerate the process of energy efficiency and technological progress.